Glossary

A

The ability to produce more units of a good or service than some other producer, using the same quantity of resources.

Accounting Loss

Total explicit costs are greater than total explicit revenue which results in a loss.

Accounting Profit

Total revenue less total costs except for the opportunity cost of capital.

Adaptive Expectations

Expectations about inflation or other economic events.

Adjusted Balance Method

A method of calculating finance charges by basing them on the opening balance owed after subtracting the payments made during the month.

Advertising

Using advertisements to promote the sale of goods or services.

Aggregate Demand

Two sectors of the circular flow. Businesses hire resources from households; the payments for these resources represent household income. Households spend their income for goods and services produced by the businesses; household spending represents revenue for businesses.

Aggregate Demand (AD)

A schedule (or graph) that shows the value of output (real GDP) that would be demanded at different price levels.

Aggregate Supply

Aggregate Supply (AS)

A schedule (or graph) that shows the value of output (real GDP) that would be produced at different price levels. In the long run, the schedule shows a constant level of real GDP at all price levels, determined by the economy's productive capacity at full employment. In the short run, the aggregate supply schedule may
show different levels of real GDP as the price level changes.

Allocative Efficiency

Taking advantage of every opportunity to make some individuals better off in their own estimation while not worsening the condition of anyone else.

Alternative

One of two or more possible choices or courses of action in a given situation.

Annual Fee

The yearly charge for having a credit card or credit account.

Annual Percentage Rate (APR)

The percentage of the principal of a loan to be paid as interest in one year. Differs from an add-on rate in that an APR is calculated on the declining balance of the loan. The Truth in Lending Act requires lenders to disclose APRs to prospective borrowers.

Annual Rate of Return

Income earned on an investment in a year, divided by the amount of the original investment. (Also known as annual percentage yield)

Appreciation of a Currency

Asian Financial Crisis

The situation that began in 1997-1998 when investors withdrew large amounts of money from several Asian countries due to fears that assets were overpriced. This led to currency devaluations and set off a panic resulting in runs on banks, plummeting stock prices, business failures and loss of jobs. Some of the countries involved were Thailand, South Korea, Indonesia and Malaysia.

Asset

Something of monetary value owned by an individual or an organization.

Assumptions

Beliefs or statements presupposed to be true.

Automated Teller Machine (ATM)

A machine that provides cash and performs banking services (for deposits and transfers of funds between accounts, for example) automatically when accessed by customers using plastic cards coded with personal identification numbers (PINs).

Average Cost

Price elasticity of demand is the percentage change in quantity demanded as a result of the percentage change in demand price. Generally, a relative response of a change in quantity demanded to a relative change in price.